Larry Berman CFA, CMT, CTAA Comment -- General Comments From an ExpertA CommentaryCOMMENTMar 17, 2025

We had such a big recovery from the March lows, a fantastic April and May, and now we're running into some volatility. Geopolitics is certainly coming into the formula. There's obviously some profit-taking, and we've seen a lot of great moves in the tech space. A healthy and normal consolidation is in play at this point.

The risks are still there. We still have relatively high energy prices, sticky inflation, a geopolitical situation, elevated yields, and midterm elections coming. When you look back at the history of midterm elections since 1957, the S&P 500 has seen a drawdown of ~17.5%. We saw a bit of a drawdown back in March of ~9%, but multiple and/or heavier drawdowns are possible.

It's amazing that earnings growth estimates have moved from high teens to 25% or so for the year. That's what's really driven much of this market move for the past couple of months.

Really hard to say where energy prices will be. If you look at the futures curve, there's an expectation of oil being at least in the $70s for later this year. That's what the market's working with at this point. But geopolitical events are very hard to predict, so who knows where we'll be in a few months?

It's a bit of a K-shaped economy. Accumulated inflation over the years has had an impact on the consumer. The consumer discretionary sector is relatively weak compared to others such as technology (which involves more enterprise spending). If you're invested in the consumer discretionary space, be careful.

Classic climb the wall of worry, and then take the elevator down. It'll probably last a little bit longer. We'll see what happens on Friday with SpaceX. There are so many moving parts and there's so much uncertainty out there, people are rebalancing. Doesn't think the drawdown will have legs. 

He has about a 52% hedge across most portfolios, and built up some cash to ~15%. When the rubber hits the road is when they take off that hedge.

Yesterday saw a pretty dramatic fall, as the futures got down to 28,200. It's sitting right now around 28,600. That 28,200 will be really important to find support. If it goes through there, we're probably going down close to another 1,000 points. The market's always right, so you have to respect it and pay attention. It never plays out the way you think.

S&P: Resistance is 7650 and support at 6250, a huge difference. Bulls need it to hold above 7250, old resistance that the S&P broke last month, or else it falls to support. The RSI has now made a massive bearish turn down, which happened when the S&P recently made a new high--this shouldn't happen. Bad. Nasdaq 100: the RSI shows a double topping patterns and overbought. This happened when tech peaked in late 2021, leading to a 30% pullback. Garner expects the Nasdaq to be 50% lower than today's level. 50. This moment recalls the eve of the 2008 recession when the economy was strong, but fell apart in mere month. Signals point to the market cooling off after months of mania. He has raised his cash position to the highest level in years.

Is not surprised that the Nasdaq is falling 2% today. It's a carry-over from Friday. There's a lot of hype and craziness in some chip stocks. People are getting ahead of themselves. True, numbers are staggering with a trillion spent on AI in 2027, but at some point you're overpaying for the future and all the good news is priced in. Also, big IPOs are coming like openAI and SpaceX--no profits but will be priced for perfection. Meanwhile, many profitable names making tons of money are ignored, like Visa and Microsoft. We're still using all their products, but they don't have AI hype. If you accept this FOMO, accept that it's volatile--it's gambling and silliness. Not every AI stock will make money. Look at past busts. The future is happening, but not every company will participate. Invest in companies that make predictable profits.

It's random, these price movements in silver and gold. He doesn't buy them and won't overpay now for high commodity prices that may not last. Buy a streamer in silver rather than in copper, gold or oil.

It's risky to bet on derivatives of growth of other industries. If you think the AI boom will continue, it doesn't mean you need to invest in copper and power, because you may not got a pure play on that theme. Copper is used for many other products which could go bad or if there's a recession. Demand has been pulled forward for years, so the valuation is pricing in all the good news.

Yes. We've had 9 straight weeks of a rapid rise, certainly one of the fastest V-bottoms he's ever seen. Trees don't grow to the sky, you need the pause to refresh and a bit of rotation. Otherwise, it just gets out of hand. So he's kind of happy to see that action, where the weak hands get wrung out.

Maybe we get a bit more of a correction, or a consolidation to mark time. Then we can lift off again.

Yes, it absolutely does make him feel better about the forward outlook on the economy. In NA especially, the consumer's a big part of the economy. Yes, there's a lot of capex spending through AI and construction projects. But you need the consumer to feel good enough to spend.

Lots of people have been talking about this K-shaped economy, where 10% of the population is doing something like 50% of the spending. But with those kinds of job numbers, you can argue that the 10% still feels pretty good. We have to keep monitoring that 10%, and the other 90%, to see how they feel about job prospects, keeping up with inflation, and whether they can continue spending on their merry way.

Two key components. One is valuation, and one is sentiment. Sentiment just doesn't want to give up. Part of the reason shows up when you look at the bond market -- it hasn't been a great place to be over the last 2-4 years, but the stock market has. 

Some may be saying that if inflation keeps rearing its ugly head, and central bankers actually increase rates, that's going to hit my bond portfolio. I'm already only making a 3-4% yield, and now may be taking a capital hit. I might as well go into growth assets -- earnings and operating margins keep going up, unemployment rate is low, governments keep spending. (He hates to say this, but the war is actually good for the economy.)

People are saying this has been the best game in town, so why stop? Especially when they don't see any clouds forming.

The market breadth is narrow; on average on a given day, we're making more 52-week lows than highs, which is not a sign of a robust bull market that will continue. A handful of stocks are keeping this rally going. Also, people will take money out of similar tech stocks to buy SpaceX on Friday, but not semis. The U.S. Fed should not raise rates, and it's wrong that the market is pricing in a hike. Rising rates should put a brake on the market. The US-Israel-Iran war won't end peacefully until the regime changes in Iran, he think, and clearly the US and Israel have underestimated Iran's strength in fighting back. The longer this war takes to resolve, the worse it is for inflation.

When the market bottomed in mid-2022 and the rally that followed, the market mostly was above the 200-day moving average, despite a few corrections. When a market gets cheap, about 10-30% of stocks trade are above the 200-day. Presently, 59% of stocks are. During peaks in 2023, over 70% were. Peaks in 2024: 80s or 90s in terms of percentage. But during the 2025 peak: 70% only, just like now. So with each new record high, fewer and fewer stocks are participating. Market tops are impossible to call, but market bottoms are easier because of the panic and fear. Euphoria dies off slowly. 

The Fed is the most important factor in the market now, and it's going the wrong way. There will be a better time to buy than now.